Alex Osterwalder’s business model canvas is a powerful tool. Its power has been demonstrated in a variety of contexts including large organizations and charities working in Africa (e.g. BalloonKenya). The value of business models in general cannot be denied. Business models are important as way of describing how an organization creates, delivers and captures value. However, given what we know about the complexity of business in the real world, is the business model canvas too simplistic?
The answer to that question is a resounding NO. The business model canvas is not TOO simplistic. A better way to describe the canvas is to say that it is NOT unnecessarily complex. There is a difference between those two notions. I outline my reasoning below
- Visual Language: We should not underestimate the power of a visual language. A visual language has the ability to cross cultural barriers and allow people from different backgrounds to collaborate successfully. These can be people from different cultures, as demonstrated by BalloonKenya, or people from different departments within the same organization. Once you have a visual lexicon that everyone understands, people can go beyond negotiating meaning, and start creating valuable artefacts.
- Ockam’s Razor: The canvas allows people to think about the main aspects of their business model and represent these visually. It is possible to critique the canvas as not being exhaustive in terms of considering all aspects of the business world. This may be true. However, it is also equally true that the aspects of the business model represented on the canvas are perhaps the most critical for success. An attempt to make it more ‘realistic’ by incorporating other factors may make it more complex, without necessarily adding value. In line with Ockam’s Razor it can be argued that “It is vain to do with more what can be done with less”.
- Gestalt Psychology: One of the most powerful aspects of the canvas is the ability to visualise all the moving parts of your business model on one chart. In business plans this information is usually spread over several pages. This can make it difficult to get an immediate sense of the entire business model. In contrast, the business model canvas is consistent with the principles of Gestalt Psychology. This is often quoted as; “The whole is greater than the sum of its parts”. In Gestalt Psychology, the parts are equally important as the sum that is generated from combining them. The power of the business model canvas is that it allows people to focus in on each aspect of their business model when necessary and also step out and get a sense of the entire model.
- The Process: The power of the business model canvas becomes most apparent when it is combined with Steve Blank’s customer development process. In this context, you start to see that the processes that the canvas enables can be quite complex. All the aspects of a completed business model canvas can be viewed as hypotheses. Each aspect can then be tested by getting out of the building. The use of post-it notes illustrates that each aspect can be changed/modified at any time in response to feedback from the market place. This is a major weakness of the traditional business plan. It does not enable this process of hypothesis testing and iteration. In contrast, the business model canvas can be used to capture the evolution of your business model as you develop and improve it.
As can be seen from the foregoing, the business model canvas is NOT too simplistic. This is not to say that it is a perfect tool. It could become, as Sean Murphy argues, a Procrustean bed, if every organization tries as much as possible to extend or trim their business models to fit the canvas. There should be a realisation that the canvas is not a panacea for all the challenges that people face when designing their business models. It should not be used in a manner that suspends all critical analysis. However, this does not take away from its power as a tool to drive business model innovation. A more interesting discussion could be about situations in which the canvas may not be the appropriate tool to use. Feel free to chime in.